Economics graduates at Manchester University who joined the protests at what they felt was teaching that did not fit them for real-life challenges. Photograph: Jon Super for the Observer

All academics think their own subjects are unique – distinctively difficult, unusually useful, exceptionally elegant, and what have you. But the two of us think our subject – economics – is truly unique.

We do not take pride in saying this. On the contrary, we are ashamed. Because what makes economics so unique is the fact that it is the only academic discipline in which a significant and increasing number of students are in an open revolt against the content of their degree courses.

The discontent has been brewing since the outbreak of the 2008 financial crisis, when students found out that their professors have little to offer in terms of explanation of the biggest financial crisis in three generations, not to speak of some of them having been cheerleaders of reckless financial expansion.

But recently student economists in many UK universities – including Manchester, Cambridge, University College London, Essex, the London School of Economics, the School of Oriental and African Studies – have begun organised protest against the content of their degree courses. They argue that their degrees are not fit for purpose, whether that purpose is preparing students for their future careers in the "real world", or more broadly, equipping them with a good understanding of real world economies.

This phenomenon is not unique to the UK. Similar movements are springing up in the United States, Germany, France, Brazil, Chile, India and other countries. Now there is even a global alliance between these student groups, under the banner of the International Student Initiative for Pluralist Economics.

Complaints about the content of economics degrees do not just come from students, whose youthful arrogance and idealism might make them see every theory as wanting, and every economic policy a manifestation of some conspiracy. The students are increasingly being joined in this protest by leading employers of economics graduates, from the Bank of England, the civil service and the City.

Employers complain that recent economics graduates, while being technically proficient, know very little about the real world. Lacking knowledge about the historical backgrounds, institutional details and political idioms of real-world economies, they end up being idiot savants – they can manipulate most complicated mathematical models but cannot translate their insights into business strategies and economic policies in the real world.

Another complaint is that, when graduate economists do have something to say about the real-world economy, their advice is incomprehensible to noneconomists – and noneconomists make up almost all their audience. And, finally, there is the nagging doubt that the advice may simply be incorrect.

It is no coincidence that employers of economists, who had been privately despairing about the direction of academic economics for years, started to express their concerns more publicly after the financial crisis hit in 2008.

To summarise bluntly, students and many employers feel that the typical economics graduate today receives a training that is irrelevant to understanding real economies, incomprehensible to the target audiences for economic advice, and often just plain incorrect.

What needs to change? – 'Back to the future'

Students, employers and many economists from outside academia are in broad agreement about necessary changes.

Students need to learn more about the real world. They need to know about the current state of the world economy, the history of capitalism (including the history of finance), and some details about specific contemporary economies – why are the Chinese or the German economies so different from the UK one, for example?

Many observers advocate "economic pluralism": students should be introduced to different approaches to economics. Free-market economics alone has three distinctive varieties – the Classical (Adam Smith and David Ricardo) and the Austrian (Friedrich Hayek) schools, as well as the Neoclassical school, which is today's "mainstream" economics. Beyond that, there are many other influential schools of economic thinking, including Keynesian, Marxist, Schumpeterian, Institutionalist, Developmentalist, and Behaviouralist. All these different modes of analysis have their strengths and weaknesses, so students need to know something about all of them, because a good analysis of complex real-world problems demands more than one analytical perspective.

Another common suggestion is that students need a wider range of empirical skills. Nowadays students are just taught econometrics (application of sophisticated statistical techniques to large data sets). They should also be introduced to national accounts, company balance sheets, flow-of-funds accounts, surveys and interview techniques. These tools are routinely used in many jobs which economics students enter after their graduation.

The striking thing about most of these proposals is that they are not radical departures, but "back to the future" – topics and skills that used to be routinely taught in undergraduate economics degrees. In the past, economics was taught as a series of interrelated debates about competing theories and the different policy recommendations of those theories. Imprecise, even messy, but useful. This approach to teaching economics could work well today – it is how other social sciences are taught and there are no good reasons for treating economics differently. But the modern economics degree is so unlike this picture that it is unrecognisable to other social scientists – and equally unrecognisable to anyone who was an undergraduate economist more than twenty years ago.

Of course, undergraduates also need to be made aware of important new ideas and theories that did not feature on past courses. Behavioural economics is frequently mentioned, and now so established that it barely qualifies as "new", yet many undergraduate courses (such as the one in Cambridge) still completely ignore it. And even when mainstream economists do introduce behavioural economics to undergraduates, they mostly teach a watered-down version, stripped of the bits which contradict mainstream economic theory.

The psychologist Daniel Kahneman, who won the Nobel prize for his work in this field, warned in his prize lecture that orthodox behavioural economics is hard to reconcile with his analysis (as in his book Thinking, Fast and Slow) of how people actually make decisions.

In recent years, when we meet people living outside the academic bubble, from taxi drivers to fund managers, and they learn that we are university economists, they often say the same thing: "You must have had to rewrite the course."

And they are always shocked when we explain that in Cambridge, like every other elite university, the undergraduate economics curriculum has remained almost the same. Effectively no change, not even marginal acknowledgement that something might be wrong with conventional economic theories that, among other things, failed to see the 2008 financial crisis coming and can't satisfactorily explain it even in hindsight.

So here is the puzzle: why has the curriculum not changed, given that so many "consumers" – students and employers – are dissatisfied with economics education today, and that there is a broad and not-so-radical consensus on the changes required? The answer lies in the peculiar view of economics adopted by most mainstream economists.

Economics as the science of 'everything'

The most important thing about mainstream economics today – and a source of pride among many of its supporters – is that it is not limited to the study of anything in particular, including the economy. It is defined by its tools of analysis (mathematical models mostly involving optimisation and equilibrium), rather than the object of inquiry.

The prevalence of this view is why so many popular economics books of recent years have claimed to be about "everything". Prominent examples include Freakonomics – probably the best-known economics book of our time – and the first volume in the Economic Naturalist book series by Robert Frank, the Cornell University professor and New York Times columnist, whose subtitle is Why Economics Explains Almost Everything (what modesty!)

This strange definition of economics, in terms of tools rather than objects of inquiry, explains a lot about why mainstream economists resist curriculum reform. They have constructed a Kafkaesque world in which proposed reforms are rejected because they are redundant, as economics already has tools to analyse "everything". At the same time, if reforms involve issues that the existing theories cannot explain well, they are rejected because they would take the curriculum outside the domain of economics. Challenged, for example, to introduce to the economics syllabus the study of the actual behaviour of traders in financial markets, academics defending the status quo reply that, first, their models can already capture the behaviour of "rational" traders, and second, the descriptive study of the actual behaviour of traders is a subject for sociologists, historians or psychologists.

In this world view, subjects such as economic and financial history, or the detailed empirical study of specific contemporary economies, are also topics best left outside the undergraduate course. Most (but not all) mainstream economists may recognise the value in studying these topics, but they are too peripheral to their understanding of what economics is for them to be given much space in the course. Students in Norway who asked to study real economies in their courses were told by their professors: "Our task is to give you an analytical framework, you have the rest of your lives to learn about current affairs."

Part of the self-image of most academic economists today is that the core of the subject is an established, settled science. At the frontiers of research, there may be controversy and even turmoil, but the undergraduate curriculum need not be disturbed, because it reflects the core of agreed theories – or at least an agreed mathematical toolkit – emerging from years of steady progress. This settled science can effectively be codified in textbooks, which include essentially everything that undergraduates need to know.

From this perspective, teaching undergraduates economics as a series of interconnected debates at best risks needlessly confusing students and at worst actively misleading them by suggesting problems or gaps in the theories where there are none (well, at least none that impressionable young students need to worry about). This is unfortunately the view taken by a leading group of curriculum reformers among mainstream economists – the CORE project group, whose proposals were recently launched with prominent media coverage in a conference at the UK Treasury. Assuming that economics is a settled science, or at least insisting that it be presented as such to undergraduates so as not to confuse them, is a serious obstacle to meaningful reform.

Academic economics, in any flavour or school of thought, is not characterised by steady scientific progress just because economists wish it were so. It is not hard to find evidence of mainstream economists being overconfident about their knowledge – think of all their declarations, in the years before the 2008 crisis, that the days of economic fluctuation and instability were over.

Even after the crisis, some economists show a stubbornness bordering on arrogance in their refusal to acknowledge the flaws in core theory. In a 2010 interview in the depths of recession, Nobel laureate Tom Sargent refused to accept any of the by then standard criticisms of macroeconomics, insisting instead that the critics showed "woeful ignorance or intentional disregard for what much of modern macroeconomics is about and what it has accomplished". Sargent added: "It is just wrong to say that this financial crisis caught modern macroeconomists by surprise."

There is another kind of arrogance at work in the refusal to reform the curriculum, especially in response to proposals to strengthen its "real world" relevance.

John Maynard Keynes famously said that economics should be like dentistry, by which he meant it should be a modest profession providing practical services to noneconomists, rather than indulging in grand theorising for its own sake. Unfortunately many academic economists seem to have an alternative, ivory-tower-centred view of the world: "pure" research is more prestigious than applied or policy-relevant research, and research is more important than teaching. So, the more detached from the real world your work is, the higher up in the intellectual hierarchy you are.

As a result, undergraduate economics courses are designed to prepare students to do further study leading to an academic research career, when in fact less than 10% of them intend to pursue one. No wonder the students and their future employers find the economics course unfit for purpose.

Given the definition of economics in terms of its toolkit and the importance accorded to "pure" research, the curriculum reform acceptable to most mainstream economists is that which proposes more maths – of the kind needed for an academic career.

Among mainstream economists who accept the need for change, the most popular reform proposal is the introduction of mathematical models of complex nonlinear systems – the kinds of models which, at least with hindsight, might have predicted the 2008 financial crisis.

There is no doubt that these models, and related research in "econophysics", represent a promising new research direction in macroeconomics. But that does not make them, even in simplified form, candidates for a new undergraduate curriculum. Most graduate economists will have no contact with these models in their careers; a few of them may need, at most, to understand their broad insights. A civil servant in the Government Economic Service expressed the requirements for the latter group pithily: government economists need to know how to drive the car, not build it.

This point extends to the teaching of models in the undergraduate course more generally. The focus should be on teaching the underlying ideas and mechanisms which drive the models, rather than the ability to derive all the results mathematically. Training students how to do these mathematical manipulations takes an enormous share of teaching time: this could be reallocated to teaching the new topics and skills mentioned earlier.

Bad economics affects us all

Reform of economics teaching is resisted so strongly by mainstream economists because they find it threatening. It is like asking the medieval Catholic clergy to teach their new recruits different interpretations of Christianity, to stop teaching them exclusively in Latin and teach more in the local vernacular, and to encourage them to challenge the intellectual and the moral authority of the Holy See. No wonder it is so strongly resisted by most mainstream economists, even by those who claim to be interested in reform.

But what does this have to do with everyone outside the academic bubble? Why does it matter that those nerds doing economics degrees are made to jump through one set of hoops rather than another?

Reform of economics education is not just a matter for university economists. The current curriculum frustrates thousands of bright young students who started studying economics thinking that they would learn something useful for making the world a better place and find themselves learning an ersatz theory of "everything" instead. Cynicism about the purpose of economics leads some of the smartest students to careers in investment banking. For employers who recruit economists with first-class degrees, only to find that they possess very narrow skill sets, lack communication skills, and have little knowledge of real economies, the current curriculum hurts their bottom line.

Above all, the future of economics education is ultimately a matter for all of us, because what economists learn in their degree influences what they do later when they make important policy decisions that fundamentally affect our lives – financial deregulation, welfare cuts, gas prices, and healthcare reform. It is time that everyone gets involved in this debate.

Ha-Joon Chang and Jonathan Aldred teach economics at Cambridge University. Chang's Economics: The User's Guide has just been published. Aldred is author of The Skeptical Economist. Chang is appearing at the Bristol Festival of Ideas, in association with the Observer, on Wednesday 14 May